Earn 4.5% on your savings, tax-free!
You can get a huge rate on your savings with this ISA from Halifax. But be warned, there is a catch...
ISA season is well and truly underway, with new products launched on what feels like a daily basis. The last couple of days have seen new or improved rates on ISAs from Halifax, Principality Building Society, Saffron Building Society and even the AA.
So what are the best ISAs on the market today?
Improving times for savers?
Last year I wrote a piece about the best possible rate offered on an ISA, which came from Skipton Building Society. My eye had been caught by the whopping rate of interest on offer – a rather tasty 5%. Compared to the rest of the deals being launched at the time, it seemed a killer.
Inevitably there was a catch – in order to secure that lovely rate, you needed to lock your cash up for a while. And we weren’t talking a year or two – you’d have to hand your cash over to Skipton for a full five years.
A year on, I was a little surprised to see that even locking your money up for half a decade won’t get you such a good rate. Here are the highest rates of interest available on five-year Cash ISAs.
|
ISA |
AER |
Minimum deposit |
|
4.5% |
£500 |
|
|
BM Savings |
4.25% |
£500 |
|
Kent Reliance |
3.75% |
£1,000 |
So Halifax leads the way with the five-year deals with an eye-catching rate of 4.5%. As we shall see, if you fancy putting your money away for a while, Halifax offers some of the best deals across a range of terms.
So how do these rates compare to the best deals a year ago? And how do they compare to more short-term ISAs?
Three years of 0.5% base rate
Last week marked the three-year anniversary of Bank of England base rate tumbling to its record low of 0.5%, where it still languishes. To mark that anniversary, financial information firm Defaqto published some interesting research tracking how the best and average rates on Cash ISAs have changed (or not) over that time.
Here’s how the best rates on offer have changed since March 2009:
|
Cash ISA type |
March 2009 |
March 2010 |
March 2011 |
March 2012 |
|
Instant / easy access |
3.61% |
3.50% |
3.15% |
3.30% |
|
One-year fixed |
3.20% |
3.00% |
3.10% |
3.50% |
|
Two-year fixed |
3.30% |
3.51% |
3.50% |
4.00% |
|
Three-year fixed |
3.25% |
4.40% |
4.01% |
4.25% |
|
Four-year fixed |
3.35% |
4.25% |
4.30% |
4.35% |
|
Five-year fixed |
3.25% |
5.00% |
5.00% |
4.50% |
So year-on-year, rates have improved on all forms of ISA except the five-year ISA. Somewhat strangely, the best rates on easy access ISAs today are actually worse than they were in 2009 and 2010, though at least they have improved since last year!
What caught my eye though is the minimal improvement you get from locking your cash up for years at a time.
From two to five years
It seems bizarre that locking your money up for five years, rather than two, will only secure you an extra 0.5% on your money. On a balance of £5,000, that’s the difference between a return of £5,225 and £5,175 in the first year – just £50.
Now if I was locking up my cash for an extra three years, I’d expect a somewhat better return.
Here are the top ISAs across 18 months, two, three and four years:
|
ISA |
Term |
AER |
Minimum deposit |
|
18 months |
4% |
£1,000 |
|
|
Two years |
4% |
£1 |
|
|
Three years |
4.25% |
£500 |
|
|
Four years |
4.35% |
£500 |
*Doesn’t accept transfers
I really like the Cheshire 18-month ISA, but it won’t be a good bet for many savers, as it doesn’t accept transfers in from old ISAs. So while it’s great for new ISA savers, those who have been saving in ISAs for a while should look elsewhere.
There are plenty of downsides to sticking your money in a longer ISA in my view, the biggest of which is that at some point base rate is going to start moving north. And when it does, savings rates will do the same. So while the rates on offer look pretty attractive now, will they still be competitive in 2016 or 2017? I’m not so sure.
Besides, when the rates on offer across the different terms are so similar, sticking your cash in a long-term ISA just doesn’t seem worth it.
Short-term ISAs
So if you’d rather keep your savings close at hand in a one-year ISA, here are the best accounts for smaller deposits on the market today.
|
ISA |
AER |
Minimum deposit |
| AA Internet Access ISA Issue 3* | 3.5% | £2,500 |
|
3.35% (includes 2.35% bonus until 30/09/13) |
£1,000 |
|
|
Leeds BS One-Year Fixed Rate* |
3.26% |
£1 |
|
Metro Bank One-Year Fixed Rate |
3.25% |
£1 |
|
M&S Fixed Rate Saving Option Cash ISA |
3.25% |
£500 |
|
Bank of Scotland Fixed Cash ISA |
3.15% |
£500 |
*Doesn’t accept transfers
Personally, I’d be more inclined to stick my cash in a short-term ISA and see how things stand in a year’s time. But what are you going to do with your ISA allowance this year? Let us know in the Comment box below!
More on ISAs and savings:
Compare Cash ISAs
Top Cash ISAs for transfers
The UK's best Stocks and Shares ISAs
The one-year savings bond that offers a 5% return!
Coventry launches best buy instant access savings account
The UK's worst savings accounts
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Comments
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My view is interest rates are not moving for at least 2 years. Unemployment is still on the rise. Housing market post stamp duty exemption (expiry this month) continues to move sideways. Mortgaging and even remortgaging is challenging. Even Tesco sales are down. Petrol prices are up and if Geo political situation in Mid East continues to be volatile and if there was an insanity to attack Iran under any pretext petrol prices at the pump will hit 2 quid and its impact on the Western Economies (UK in particular) will be catastrophic. Euro zone countries still have problems and the can keeps on getting kicked.Inflation although in check will not get under 2% anytime soon. Government cuts in civil service and all public sector jobs will begin to really kick in next year, QE is feeding the Stock market boom (with few exceptions). The money could have been better used in infrastructure building. The Banks still have a large overhang of non performing debts and are still recapitalising Bankruptcies and store closures will continue for a while yet so all the indications are rates will not rise until at least the 1st quarter of 2014 (My view is not for 3 years IE until 2015) so locking in for 3 or 4 years is not bad.
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I do think interest rates will be much higher in a year's time. The government have no hope of moving the economy in a year ( or more) so will not want to see rates move one bit. So I would tie your money up for probably 4 years to get a reasonable rate. I shall do this come 6th April as I always jump in as soon as possible to get my isa so does the wife. The only problem is keeping track of teh £85K limit of toatl funds with each bank. I narly came a cropper teh other year with Heritable- luckily Darling paid me out for my bond which was over the then limit of £50K. Would Osborne do the same? I doubt it as he and poverty are not related or even nodding acquaintances!
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15 March 2012